SPEECHES — DG ROBERTO AZEVÊDO

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[Translation of the speech originally delivered in Portuguese]

[Opening address]

Minister Gilmar Mendes,
Director Pedro Romano Martinez,
Professor Carlos Blanco de Morais,
Director Cesar Cunha Campos,
Secretary Mansueto Almeida,

Good morning.

It is a great pleasure to join you today at the opening ceremony of the 6th Fórum Jurídico de Lisboa.

Being Brazilian makes the pleasure even greater.

Brazil and Portugal have a shared history, a shared language, and of course, a very rich track record of cooperation in a number of fields, including on the global stage.

This event is a very welcome opportunity to discuss how Brazil and Portugal can work to meet the challenges of the 21st century.

The world is changing at a fantastic pace. We need to be ready. The changes and tensions that we see in modern society are of a structural nature, and this has been concealed by the strong economic slowdown in the aftermath of the 2008 financial crisis. Many of the problems that we face have been attributed to the crisis when, many times, this was not the case. So most changes and tensions that we see today will not disappear with the resumption of economic growth.

This is, in fact, a very different cycle from all that we have witnessed since the beginning of the industrial revolution in the 18th century. It is fundamental to understand this phenomenon  and be ready to tackle it.

Today we will have the chance to hear from renowned specialists, coming from a range of disciplines.

The title of this event refers to the welfare state. By definition, this arrangement seeks to address asymmetries and favour the inclusion of everyone in the process of economic development.

None of this is obvious, especially in cycles of structural change. The discussions that we will have are therefore fundamental to help decision-makers. Governance policies at the national level will need to be reassessed.

So it is with great pleasure that I am here today and try to contribute to this debate.

So I would like to thank everyone involved in putting this initiative together, especially the organizers:

  • Instituto Brasiliense de Direito Público,
  • Faculdade de Direito da Universidade de Lisboa,
  • and Fundação Getulio Vargas.

I wish you all a very productive meeting. I am sure we will learn a lot.

[Keynote remarks]

Good morning again.

I am glad to address you today – and I would like to thank the organizers once again for the kind invitation.

Our topic today, "new international relations and the reorganization of trade", is well tuned in with the broader global debate. I will try to approach this from a broad angle, zooming out a bit from a strictly trade angle.

At the outset, I would argue that the global trading system – represented by both the GATT and the WTO – has actually been a success story.

The system has fostered greater cooperation between nations for 70 years, facilitating huge advances in economic well-being around the world. It has supported job creation, prosperity and development, helping to lift millions of people out of poverty.

In this broader context, it is important to note that this system was created immediately after the Second World War, in 1947, with the aim to promote the recovery of the global economy and greater global political stability. The founders of the system – the major players - were convinced that the best way to achieve these goals was through deploying coordinated efforts in a spirit of international cooperation.

This logic, which has prevailed for 70 years, seems to be questioned recently, whether intentionally or not.

We've all seen the headlines in recent days and weeks about the rising trade tensions between a number of major economies. The situation is of real concern, as there are signs that this may only be the beginning of these tensions. An escalation of reciprocal trade restrictive measures would stop this recovery in its tracks – with consequences for jobs and GDP growth that would harm us all.

But, in addition to the important economic consequences, the potential systemic consequences could be even more serious.

It is important to try and avoid this escalation. Once the domino effect starts, it will be very difficult to revert it. I am talking to all sides to try to resolve this situation. There may still be time, but we need open communication lines and a true disposition to find constructive solutions.

This is one of the most urgent challenges before us today. And I think it connects with our conversation here about 'new international relations' in two key ways.

First, I think it actually underlines the vital importance of preserving the spirit of international cooperation, and not confrontation, which has guided the creation of the multilateral trading system in the post-war period.

And second, because the roots of these tensions are at the broader economic context. They emerge from the process of structural change that we are living through, and I will explore this further on.

So while we need to respond to the immediate threats that we see, we also need to develop a deeper understanding of the longer-term shifts. This will allow for a clearer sense of how we can respond.

But what is this process of change we are living through? And why is this different from the past? After all, technological change is not new. When the wheel was invented, someone lost their job. What is different today is the speed of change driven by technological advances, and the tendency that they will only accelerate.

Patent registrations, which can help us to keep track of innovation, have been growing by about 11% a year for the past half-decade – compared with a long-term average of 6%.

Technology and innovations are now spreading much more rapidly than ever before. The time it takes poor countries to catch up with pioneering countries’ usage of a technology has shortened dramatically. After the spindle was invented in 1779, it took over 100 years for the technology to spread around the world. With the internet the time lag was just 6 years. Society had decades to adapt to the transformations caused by new technologies. Today, we only have a few years.

All of this is having a huge impact on the way nations interact – cutting the costs of doing business between countries, helping to set up global value chains with suppliers in many nations, and opening up a global marketplace.

Distances, costs and times have been shortened, especially with the digital revolution. Between 2013 and 2015, the value of online trade jumped from 16 trillion to 22 trillion dollars, almost 40% in two years, and there is no doubt that this growth will continue.

Indeed, I think we are only at the start of this process of transformation – which people are calling the Fourth Industrial Revolution.

Looking ahead, the combined applications of elements such as AI, advanced robotics, 3D printing and blockchain could have further huge impacts which are hard to predict.

By significantly reducing trade costs, digital technologies could potentially lead to an expansion in global value chains, further shifting production activities to developing countries. Or, if it becomes more efficient to bring production activities back together in "smart" local factories than to offshore them, we could see the opposite effect.

With blockchain, product and service providers in places with weaker legal and intellectual property systems could benefit, as this technology would make it easier to protect their data and financial transactions. It may also help smaller businesses to start trading, by supporting them to build trust with partners around the world. This is a technology that favours the integration of the global economy, as it creates trust in cross-border transactions. There is a lot of work being developed in this area.

I could cite many other examples of how new technologies are changing business and societies. However, I will not delve further, as other panellists will discuss this topic.

I want to highlight that the WTO will be publishing a major report on the implications of these new technologies and their trade applications in October this year.

But the fact is that these changes are underway. We can't ignore them or hold them back. The challenge is to adapt, but also to shape these changes in the way we want. 

Previous industrial revolutions have created huge wealth and opportunity, but they have also created real societal problems. So, if we want this new revolution to be inclusive as aimed by the welfare state, then we have to shape it – and we have to act now.

But what is the relation of all this with the developments that we are seeing in the trading scenario, with the tensions in last weeks and the risk of a protectionist wave?

One of the most immediate ways that economic change is felt is through disruption in the labour market.

In 1900, almost half of all workers in France were employed on farms. Today, the figure is less than 3 per cent.

In 1970, over a quarter of American employees worked in the manufacturing sector. Today, it employs less than 10 per cent. And yet US manufacturing output has nearly tripled.

There are many factors which can cause these huge shifts. The biggest factor is the transformation in productivity driven by technology and innovation – this accounts for around 80% of job loss in manufacturing. And we have to be ready for this trend to continue.

According to a McKinsey study of 54 developed and developing countries, 64% of manufacturing jobs today have the potential to be automated. That represents over 230 million jobs. In Brazil, 10.9 million manufacturing jobs are at risk. In Europe, it's 25.5 million.

These jobs aren't going overseas. They just don't exist anymore. And the number of workers who lose more traditional jobs grows every day. The middle class is pressured by the threat of unemployment, or underemployment, and by the contention of salaries in traditional sectors of the economy.

This situation is worrying. But it is also evident that new technologies are welcome, are inevitable, and that they can also favour job creation.

In fact, more jobs will be created than lost with new technologies, and these new jobs are better remunerated. But the professionals who lost their jobs in more traditional sectors will not occupy the new vacancies in more dynamic ones. Most likely, they will find a more unstable job, with a lower pay. In a nutshell, the asymmetries rise between the most dynamic and least dynamic sectors. There are more contrasts between the people surfing this new wave in the economy and those who get caught in it.

This phenomenon is captured clearly in the economic literature, such as in Milanovic's elephant curve.

This group of left-out people is susceptible to the easy political discourse that blames the external enemy. It is simpler to blame the immigrant or the imported product for the loss of jobs. This political dynamic can lead to feelings of extreme nationalism and intolerance. And I have to make it clear that I am not talking about a specific country. This is a phenomenon taking place across the world.

So once there is the perception that the problem comes from the outside, cooperation is abandoned in favour of confrontation. So how can we expect foreign policies that lead to collaborative efforts in a field that is perceived as a zero-sum game?

This sequence of equivocated perceptions stems from an original sin: the diagnosis of the problem is wrong. Tensions in the labour market do not come from outside, but from the inside. They come from the new technologies and the process of economic restructuring caused by the digital revolution.

And therefore putting in place new trade restrictions or closing borders would be applying the wrong medicine. The focus should be on domestic policy and adapting it to the challenges of the 21st century, especially in the areas of education, training and retraining of professionals.

For example, a study cited by the World Economic Forum estimates that 2/3 of the children in primary school today will work in jobs that do not yet exist.

In this scenario, welfare policy has to be redesigned for a reality where the number of people unemployed, whether temporary or not, will be potentially much more expressive than the current figures. In the US alone, 3.5 million truck drivers may lose their jobs to self-driven vehicles. And all the structure involved in road trade will be affected. The figures are impressive, and real.

And there is no 'one-size fits all' recipe. Each country will find their own formula, compatible with their political and economic reality.

Neither can we underestimate the complexity of the reforms that will be necessary. This is one of the biggest challenges facing all governments today – one that will not be met by a 'business as usual' approach.  But, as I have said, this is the realm of domestic policy. At the international level, we also have a role to play.

In this rapidly changing economic context, I think we need a global trading system that is:

  • Firstly, strong enough to help countries resolve disputes, offering a system that helps to depoliticize areas of friction.
  • And, secondly, we need a trading system that is flexible enough to help countries to seize the opportunities that the Fourth Industrial Revolution will provide.

Let me take each point in turn …

First - ensuring the system remains strong and with an effective dispute settlement system. This requires work and engagement.

An important element here is to continue delivering new trade reforms.

We have shown over recent years that the WTO can produce meaningful results:

  • In 2013 in Bali, we delivered the first multilateral deal in the history of the organization – the Trade Facilitation Agreement. This agreement has huge economic significance, potentially cutting trade costs globally by an average of 14.3 per cent. This is a bigger impact than the elimination of all remaining tariffs in the world today.
  • In 2015 in Nairobi, members abolished agricultural export subsidies.
  • In addition to that, a group of members agreed on the expansion of the WTO's Information Technology Agreement. This deal eliminates tariffs on a range of new generation IT products, trade in which is worth around 1.3 trillion dollars per year.

Besides trying to harvest more results in the traditional areas of our work, we are also seeing discussion in other dynamic areas such as e-commerce, investment facilitation, support to small businesses and women's economic empowerment. All this is new.

In fact, the level of political support to our work has never been higher. In December last year, at our Ministerial Conference held in Buenos Aires, we had the presence of four Latin American heads of state – including President Temer – and five Presidential envoys from the region.

I have seen manifestations of support from across the world. With the threat of unilateralism, everyone is reminded of the importance of the system.

So we will keep working.

This brings me to my second point, which is about the system that we need in this world in transformation.

The WTO is an organization that takes decisions by consensus. We have 164 members and need agreement between everyone to decide anything, including the agenda of a meeting. And obtaining consensus between many different countries with different levels of development, different political and economic priorities is not easy.

So we need more flexibility in the way we conduct our conversations. We cannot rely on "one-size-fits-all" measures.

This flexibility may be in the way we work. For example, by promoting open discussions where interested members can participate.

Flexibility can also be related to the content of what is being agreed, especially when all 164 members participate. For example, by agreeing deals where countries can determine the speed of implementation and the type of technical assistance needed. The Trade Facilitation Agreement is a case in point here.

Strength and flexibility – these are essential ingredients for an effective trading system. And the WTO is an invaluable resource here. The world needs it today more than ever.

This requires engagement and commitment from us all, even when the problem seems to be localised.

Thank you for listening. I wish you a very successful and productive event.

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